'Actions speak louder than words': Sensex, Nifty rise; what market analysts say on Fed rate cut

Benchmark indices Sensex and Nifty jumped in early Thursday trade, as investors globally digest a 50 basis points rate cut by the US Federal Reserve overnight. While the rate cut has triggered a risk-on trade in Asia, some analysts fear the Fed Chair Jerome Powell has indirectly hinted a weakness in the US economy ahead. For now, the stock market may consolidate with upward bias, they said.    

Actions speak louder than words, said Nomura.  The foreign brokerage said despite the supersize cut, the dot plot and economic projections, Powell’s press conference was relatively hawkish, implying the FOMC views the latest move as a one-off, rather than the start of a series of 50bp cuts.

"Despite the hawkish trappings, the rate cut decision raises the risk of a faster pace of rate cuts, in our view," Nomura said as it continues to expect 25 bps cuts in November and December.   

The Fed Chief downplayed the risk of an economic slowdown and maintained that a 50 bps cut was mainly done to support the labour market. It seems like the markets will take its time to digest this move of more than expected cut, said Apurva Sheth, Head of Market Perspectives and Research , SAMCO Securities.

The big Fed rate cut has the potential to take equity markets into a consolidation phase with an upward bias, said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

The BSE Sensex climbed 682.57 points, or 0.82 per cent, to 83,630.80. Nifty traded at 25,572.65, up 195.10 points or 0.77 per cent. Fear gauge India VIX, which suggests volatility in the market over the next 30 days, fell 8.76 per cent to 12.20. HDFC Bank, NTPC, Infosys, ICICI Bank and Axis Bank contributed most to the index gains.  

"The Fed chief Powell’s remark that the Fed has gained greater confidence that inflation is moving sustainably towards 2 per cent is a very optimistic commentary on the US economy. At the same time US growth continues to be solid and the labour market is good," he said. 

Vijayakumar said the rate cuts by the Fed will pave the way for rate cuts in India as CPI inflation has come below the RBI’s target of 4 per cent in the last 2 months. 

"Two rate cuts of 25bp each are possible in India before March 2025. In brief the market scenario is turning favourable for rate-sensitives, particularly banking," he said.

Divam Sharma- Founder and Fund Manager at Green Portfolio PMS see positive momentum in the domestic market ahead.

"Overall the improved global sentiment could trigger a rally in the markets because one- emerging markets like India will become all the more attractive and second- we could see reversal of FII outflows that we’ve been witnessing since past few months," Sharma said.

Three cuts of 50 basis points in the next 12 months will trigger a feeling in the markets that recession fear is back. Fed will have to take the forward path cautiously, said Sharad Chandra Shukla, Director at Mehta Equities.